15 Reasons Why The Italian Election Matters To The World

The euro crisis front has been relatively quiet since ECB President Mario Draghi gave his famous "whatever it takes to save the euro" speech in July, and many analysts have been waiting for this weekend for months.

Mario Monti, an unelected technocrat, has been relatively successful in pushing through economic reforms since assuming office in late 2011, but those reforms have driven the country deeper into recession, and record high unemployment shows how Italians are suffering.

As a result, former comedian Beppe Grillo and his newly-formed political party, the anti-establishment Five Star Movement, have seen a surge in interest.

As the elections draw nearer, the position of establishment political parties heading into the polls appears to be weakening.

The fear is that reforms could be hampered, causing Italian bond yields to rise again, causing the European chaos to reignite. Furthermore, the election shows what happens when the goals of the elites goes up against the economic situation of the voters.

With government debt topping 127 percent of GDP, Italy is the most indebted country in the euro zone after Greece

Bloomberg, Business Insider

Its economy is in a prolonged recession – one that has recently intensified

Bloomberg, Business Insider

Last week, Italy released fourth-quarter 2012 GDP figures. The economy contracted 2.7 percent from the previous year in the Q4.

The data marked an acceleration in the pace of economic contraction from Q3, when GDP fell 2.4 percent year on year.

Economists were expecting the numbers to get slightly better, not worse – they had predicted a 2.2 percent decline year on year in Q4.

The unemployment rate, at 11.2 percent, is at a record high

Bloomberg, Business Insider

That is nothing compared to youth unemployment, though, which stands at 36.6 percent

Bloomberg, Business Insider

The problem is that the Italian economy lacks competitiveness

IMF, SEB

Another way to see this is by looking at exports – Italy has had one of the worst recoveries in exports since 2008

Deutsche Bank, Haver, Eurostat

And Italian companies are also losing market share in international markets

Deutsche Bank, OECD

Note from Deutsche Bank, source of this chart: "This metric allows us to show over time whether a country's exports grew at a faster or slower pace than its export market. A fall in the export performance ratio implies a loss of market share."

The main driver of this lack of competitiveness is productivity – it hasn't kept pace with wages, which means Italy's real effective exchange rate has risen much more than its peers

Deutsche Bank, OECD

Deutsche Bank economist Marco Stringa wrote in a report on the Italian economy last week: "For Italy, once again, we reach the usual finding: the priority is to increase productivity gains. In our view, that can be sustainably obtained only via structural reforms. The Monti government initiated what is only the very beginning of a structural reform process that will need to be strictly implemented (e.g. tax evasion) and expanded by the next government."

Needless to say, Italians are not happy

Bloomberg, Business Insider

For all that, though, government borrowing costs are at their lowest levels in three years – but continued low yields are critical for Italy if it wants to avoid economic disaster

Bloomberg, Business Insider

The election has raised concerns that the economic reform programs underway in Italy – which have been encouraging low yields – could be hampered